Microcredit Summit Campaign Establishes Poverty

The Microcredit Summit Campaign Executive Committee recently approved the creation of a Microcredit Summit Poverty Measurement Tool Kit (PMTK). The Campaign Executive Committee has agreed that the first two measurements to be included in the Summit’s Poverty Measurement Tool Kit are the CASHPOR House Index for use in rural Asia, and Participatory Wealth Ranking. While the Summit is not necessarily proposing that these measurements be used to screen out clients, those microcredit programs that wish to serve the poorest families and have a methodology that easily incorporates these tools may find them useful in assessing the poverty level of the clients they serve. These tools, and others to be identified, will be used to assess progress toward the Summit’s goal of reaching 100 million of the world’s poorest families. A summary of how these tools are used, as well as contacts for more information, are provided below. Also refers to the Grameen Dialogue #32 for the remarks by John de Wit and David Gibbons on “Targeting ” the poorest: Perspectives from two continents.

Background The Microcredit Summit’s goal is to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005. In 1996 the Summit’s Organizing Committee adopted the definition of the “poorest” from the Policy Advisory Group of the Consultative Group to Assist the Poorest. For the purposes of the Microcredit Summit Campaign, the “poorest” are those families in developing countries in the bottom 50 percent of the population living below their country’s poverty line. In industrialized countries, the Summit’s goal focuses on reaching families below the poverty line of their country.

Early in the campaign it became clear that it would be difficult to track progress toward the achievement of the Summit’s goal with the current knowledge of the field. Often, when microcredit practitioners are asked to report on how many clients they are serving, they are able to report the total number of their clients and the percentage of their clients that are female. However, most practitioners are unable to document how many of their clients, at the time they receive their first loan, are among the “poorest” as defined by the Summit. Most practitioners simply do not have a simple, low-cost method for assessing the poverty level of their clients.

This is why the Microcredit Summit Campaign launched the Poverty Measurement Discussion Group in October 1997. The ongoing discussion group is meant to help gather the methodologies being used by microfinance programs to identify clients who are in the bottom half of those living below a developing country’s poverty line. More than 680 people have joined the discussion group. In the first two rounds of discussion, participants considered two very promising and well-documented poverty measurements: the CASHPOR House Index for rural Asia and Participatory Wealth Ranking.

Summit’s call for more measurement tools The tools outlined here represent only the first of what are hoped to be many measurements included in the Summit’s Poverty Measurement Tool Kit (PMTK). As these first tools are broadly disseminated, it is hoped that institutions will share other tools they are using. The Summit will then initiate a discussion of the new tools among members of the Poverty Measurement Discussion Group. The most promising tools will be presented to the Campaign Executive Committee for inclusion in the PMTK.

The Summit Secretariat will send to the Poverty Measurement Discussion Group a new group of measurements in early 1999, and is actively seeking detailed descriptions of other poverty measurement tools in use. Answers to the following questions should be provided with any submission:

1. How is the tool implemented? We need step by step instructions, copies of any forms or questionnaires used, and a list of physical materials needed to implement the methodology.

2. How well does the tool work? Can it distinguish between poor families and non-poor families? Can it distinguish between very poor families and poor families? Include any evaluations or studies done that compare the tool with other methodologies, or that report on the tool’s accuracy in distinguishing the poverty level of clients.

3. What are the costs involved in using the tool? How much staff time is required? What skill levels do staff need to use the tools effectively? How much of an institution’s resources are used in implementing the tool?Submit poverty measurements to Microcredit Summit Campaign Research Director Robert Gailey atgailey@microcreditsummit.org or fax to 1 202 637 3566.

Participatory Wealth Ranking
as used by the Small Enterprise Foundation – South Africa Participatory Wealth Ranking (PWR) is a modification of the Participatory Rural Appraisal (PRA) technique. It is a subjective and very local ranking of wealth used by members of a community in order to establish which members within the community are the most destitute. Community members generate their own criteria with which to rank poverty or wealth; this often includes factors that are not visible nor easily identified by an outsider. By engaging the community members throughout the process, people are empowered to analyze their own situations, often giving them greater ownership in the programs that are established to help the poorest within their communities.

The PWR begins with a staff member inviting participants from the community to attend a mapping of the village. Invitations should encourage women to attend; it is also important to ensure that at least a few people from each area in the village attend. The first step is to draw a map of the entire area that includes the names of all the households in the community. Second, the group records the names of each household on a separate note card. The staff member then establishes various reference groups comprised of the participating community members (three or four groups of four to six people each) and organizes a schedule of appointments for the following day.

The meetings with the reference groups begin with the staff member facilitating a general discussion on poverty and the characteristics of the very poor. Then, the groups are asked to sort the cards with the names of the various households into piles according to the households’ wealth status. Each group is free to make as many piles as it wants (with a minimum of four piles) as long as the piles separate the poor people from the less poor. The staff facilitators take notes on the distinguishing characteristics for each pile discussed by the group.

At the end of the ranking exercise with the three reference groups, a score is calculated for each household depending on how the house was ranked by each group. The numbers given to each household from the three reference groups are then totaled. Scores are identified as either consistent, inconsistent but still usable, or unreliable. Households with unreliable scores will then either need another reference group to add a score to their evaluation or they can be checked with other targeting methodologies, such as a housing index, for greater clarification. Once the scores are totaled and compared with the notes taken from the discussions, a cut-off number is determined for the program’s target group. Households that score below the cut-off number are eligible for microcredit services.

Strengths of PWR

Responses from three to four different reference groups ensures greater reliability of the data and overcomes manipulation or lack of knowledge by a specific group.

Families’ specific assets are not publicly discussed, decreasing the embarrassment of some and the hiding of information by others.

The staff, as outsiders, gain a greater understanding of the community; while the community members, as insiders, define their own criteria and methods for analyzing poverty. Furthermore, most of the actual work is done by the community members, which allows the staff to facilitate and take notes.

Detailed information about the area is generated through the process. This provides good data to determine the cut-off point for who is poor enough to join a program. This information can also be used for product design or impact measurement.

A potential weakness of PWR is that the field staff has a very significant responsibility to effectively facilitate the process. Although collecting responses from three different reference groups ensures that problems are easily detected, poor facilitation can rapidly lead to inconsistent results which must be abandoned, thus wasting resources.

A method to overcome and prevent this potential weakness is to emphasize training of staff in these methods and continue to monitor their performance.

For more information:
The Small Enterprise Foundation’s “Participatory Wealth Ranking Operational Manual” can be ordered through the Microcredit Summit Secretariat for US$10. Please e-mail the Secretariat for more information.

CASHPOR House Index, as used by CASHPOR Inc.
The CASHPOR House Index (CHI) is an external, observational methodology which provides a cost-effective way to identify very poor people in most conditions throughout rural Asia. It is an adaptation of the Grameen approach to poverty targeting. Institutions that are members of the CASHPOR network have found that this tool enables them to identify very quickly the very poor families in a given area with about 80 percent certainty. The CHI entails looking at seven main features of a house, including: size, number of stories, structural condition, building materials used for walls and roofing, utility supply, and ownership of vehicles. These criteria are adapted as necessary to suit local situations. Each component is allocated points. A cut-off score is set (again, this must be locally relevant) so that families whose houses score above a certain number of points are not eligible for participation in the credit program, while households that score below a certain number of points become eligible for further consideration, usually using a test administered by staff. An appeals process is established for families who claim to be very poor but whose house scored too high to be considered for the program. CHI does not work well in villages with government-provided housing for the poor; in such cases the evaluation can be replaced with a participatory form of wealth ranking.

Assessing Household’s Wealth and Eligibility for Microcredit The first step in implementing the CHI involves speaking to informed local officials (in agriculture, health, education or welfare departments) to locate where the greatest number of poor households are found in a given geographic area. Second, a program staff member makes a quick map from the road of the areas suggested. This provides a list of neighborhoods that seem to contain the most eligible-looking households. Once these neighborhoods are located, a more thorough application of the CHI is conducted in these areas so that each house is mapped and those that are eligible are clearly marked.

Each eligible household, based on results from the CHI, then receives a Networth test conducted by a staff member. Net worth (wealth) is calculated by subtracting the value of the household’s debts from the value of the household’s major assets. Since only households that meet the strict criteria of the CHI are given a Net worth test, a more thorough Means test (which determines household income as well as assets) is not necessary.

The Net worth test provides an additional quality check on the results of the CHI and assists in obtaining base-line information on potential clients. Once all eligible households have completed this process, they are informed whether or not they are provisionally eligible to participate in the program. Staff then focus their attention on motivating those households that are eligible to join the program. In areas where substantial leakage to the non-poor is thought to be likely, a senior staff member also interviews a sampling of the households which have been selected to ensure that the target group is being reached. When necessary, a household may appeal its lack of eligibility. In this case, senior staff members conduct a thorough interview to determine whether or not the household is indeed among the target population, despite external evidence to the contrary. The appeal option ensures that some of the hidden poorest are not prevented from participating in the program.

Strengths of the CHI :

It is possible to distinguish between poor households and very poor households.

The process of eliminating many households based on eligibility criteria involves low cost. Most of the effort and costs are focused on finding the extremely poor households.

Because of its implementation by trained program staff, the criteria used for indexing the houses can be locally adapted while still maintaining objectivity.

Staff can be easily trained to do evaluations.

Follow-up interviews help prevent corruption and ensure more reliable data.

The appeal option provides a method for most of the hidden poorest to still be reached.Some of the potential weaknesses of the CHI:

It loses some of its ability to distinguish between the poor and the very poor when applied in areas of low rainfall, areas where government housing programs exist, or other areas where there is a uniformity of housing structures.

Potential clients can cheat on the follow-up Networth test by providing false information.To overcome the potential weaknesses of the CHI:

It is important to constantly monitor procedures in order to find any weak implementation or less-committed staff who may allow the non-poor to become eligible.

For more information:
The “Draft Training Manual on Cost-Effective Targeting” can be ordered for US$15 plus postage and handling from CASHPOR Publications at: CASHPOR Technical Services (M) Sdn. Bhd.
No. 29 Jalan Permata 5, Taman Permata (Lobak)
70200 Seremban NSDK , MALAYSIA
phone: 606 764 2307 fax: 606 764 5116
e-mail: gibbons@pc.jaring.my
swebsite: www.cashpor.com
The information for the PWR summary came from the Participatory Wealth Ranking Operational Manual,” Version 3.0, August 1998, published by the Small Enterprise Foundation.
The information for the CASHPOR report came from the “Draft Training Manual on Cost-Effective Targeting,” produced by CASHPOR Inc., published by GRAMEEN TRUST in June 1995.